The U.S. Equity Market took a sharp downturn in the final weeks of July as investors reacted to various concerns. The market subsequently turned around in mid August to recapture some of these losses. The year to date returns for the following indexes are as follows:

                                                    2007 YTD Market Index Performance
                                                    Dow Jones Industrial Average             13.31%
                                                    S&P 500 Index                                    9.13%
                                                    NASDAQ Composite Index               11.85%
                                                    Lehman Aggregate Bond                       3.85%

The US Stock market was characterized by a significant amount of volatility this past quarter. The problems in the credit markets stemming initially from the concerns over subprime mortgages rippled through the stock market, the economy and beyond our borders. This has impacted the confidence in the financial structure of the credit markets, ranging from lending practices, the securitization process, the rating agencies, the accounting used and disclosure related issues among other things.

Institutions owning some of these securities were holding time bombs as their exposure to default risk was obviously more significant but not really known because it could lay dormant in a portfolio. This affected the valuation of these types of securities as it made it almost impossible to price accurately, leading to a drying up of participation in those markets and price declines of unusual proportions. With large hedge funds and other institutions owning a significant amount of these mortgage backed securities on leverage, they were faced with having to meet margin calls on their borrowing and shareholder redemptions. They had to sell from some of their more liquid holdings such as equities, thereby contributing to their quick declines as well.

Home mortgages representing the borrowing by homeowners are used as collateral to create mortgage backed securities. In some cases the less desirable mortgage backed securities are sliced into tranches and bundled and repackaged with other types of instruments to be included in a new type of security such as Collateralized Debt Obligations (CDO's). The newly created pool then gets rated more favorably by the rating agencies than it probably should through the magic of financial wizardry, computerized alchemy and reduced transparency. Think of it as slightly watered down ketchup for the same price. Hedge funds then buy these up using borrowed money and it doesn't take but a sneeze for the house of cards to eventually tumble and the trust in the system to evaporate. In all, a gross miscalculation of risk where even the sophisticated models could not incorporate or foresee that the basic human element of confidence can crush the validity of an otherwise good model on paper. Simply put, beyond the obvious excessively relaxed lending standards brought on by cheap money, this is about the use of leverage on leverage and the creation of new securities to diversify away risk by transferring it, making it less visible, and in the end realizing that it cannot be diversified away for the whole. Risk remains there, just harder to find as they seem to have misplaced it. Confidence will return for the right price when they find it and have a chance to reprice it.

The stock market was quick to return to reality as buying opportunities presented themselves in light of valuations that were and still are relatively attractive as earnings continued to expand. One of the concerns with the fall out of the credit issues is the unknown effect on consumer confidence and the resulting impact on an already slowing economy. To fight those concerns the Federal Reserve lowered interest rates by half a percent, which was more than expected and should provide some relief. Although the Fed can't fix some of the problems, they have gone to a more accommodative stance and future rate cuts are probable. This along with the global effect and the weak dollar supports the notion that the US Economy will stay in growth mode. The stock market has been resilient and by historic measures, valuations are attractive. Short term is a guessing game, but we remain positive about the outlook over the intermediate to long term time frames.

On behalf of everyone at Ifrah Financial Services, thank you for your trust, confidence and the opportunity to serve you. Should you have any questions, concerns or comments, please always feel free to contact us.